AMA's fair value should be about $0.17 right now, which is 2.4x the current price of $0.07. Canaccord Genuity reiterated buy rating yesterday with a $0.16 price target, and Bell Potter has buy with $0.14 target (down from $0.15 prior).
I get to $0.17 by taking the mid-point of 2024 EBITDA guidance, which is $45.5 million, and put a multiple of 10x EBITDA on that, which gets you to $455 million in enterprise value. Minus $150 million in net debt ($130 mil.. bank debt + $50 mil. in convertible bonds - $30 mil. in cash), = $305 mil. in equity value, divided by 1,804.4 mil. shares outstanding = $0.169 per share.
10x EBITDA is the right multiple because the EBITDA margin is very depressed versus historical norm, so a buyer would pay 10x knowing it would likely translate into 5x once the EBITDA margin normalizes over the next year or two (accelerated by synergies, in a merger scenario).
Boyd Group (BYD C$296) in Canada trading at north of 13x EBITDA, but they have a 13% EBITDA margin.
While I agree with Charlie Munger that EBITDA can be used to mislead, so can regular net income (EPS), so it's not so much the measure that is inherently evil, it's the way it's used, by the person using it. If EBITDA is presented properly, and the misleading items are understood, it's no worse than net income in my view in terms of comparing one company to another. But nothing matters more than free cash flow. If the EBITDA, or net income, doesn't convert into free cash flow at a high enough proportional rate, it's all worthless.
AMA is not generatiing real free cash flow at this level of EBITDA margin. They need major price increases from Suncorp to get there. Boyd has received the necessary price increases (and more) from their insurance partners, and their insurance partners have no where near the amazing combine ratio of Suncorp. AMA needs to fix this one-sided, parasitic relationship with Suncorp or end it. Seriously.
AMA Price at posting:
6.9¢ Sentiment: Buy Disclosure: Held
